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somewhat stuck for a while in April as economic reports were mixed, until finally later in the month it resumed its climb on the back of strong corporate earnings.  I continue to believe that the stock market is quite vulnerable, not only to an ordinary and overdue pullback, but also to the phenomenon of inflation, profit margin compression and valuation contraction.  Furthermore, I also sense way too much complacency as though the financial system has completely healed whereas the reality is that it has been and it continues to be artificially propped up.  With all of that said, as is almost always the case there are a fair number of stocks that have not participated and that remain cheap.  Investors should always be willing to purchase the most competitively advantaged companies with solid balance sheets when their stocks are priced favorably.
 
The precious metal markets, meanwhile, continued to make new highs all month long as we witness the ongoing debasement of our currency.  Food, oil and other commodity price inflation continues unabated, most visibly in the price of gasoline.  Also during April, the University of Texas endowment fund announced that they had purchased half a billion dollars worth of gold, the Standard & Poor’s rating agency took the once-unthinkable step of placing the United States on credit watch with a negative outlook, and the Fed chairman made an unprecedented and historic news conference during which the US dollar plunged as gold and silver soared while he spoke. 
 
So far the destruction of the dollar has been gradual, and it may well continue that way.  But there also exists the significant possibility that at some point it becomes a waterfall decline, in which case panic and chaos in financial markets would ensue.  This event would certainly also cause major disruptions in ordinary daily life and overall economic activity.  Let’s hope it does not get that bad if it were to happen.
 
Investors should consider accumulating gold, silver, mining shares and other direct inflation investments.  The ascent of gold has been orderly, measured, controlled and consistent.  This price action suggests that we have a solidly-entrenched trend with major buyers such as central banks and endowments ready to step in and buy more at every short-term price drop.  Ultimately I expect gold to one day be the ultimate bubble when everyone has caught on to the paper currency situation.  When that day arrives, the price action will surely signal it via a hyperbolic and vertical move.     
 
Michael H. Berlin, CFA, CPA, is the founder and portfolio manager of MHB Equity Partners, a value-oriented private investment partnership.  He previously worked at Lehman Brothers, and before that at Ernst & Young.  Mr. Berlin holds an MBA from Columbia and a BBA from Michigan.
 
Michael can be contacted at mberlin@mhbpartners.com and at (631) 629-4928.